Insight & Analysis

Certainty in short supply

Published: Feb 2023

Recent survey data paints a slightly confusing picture of corporate supply chain prospects for 2023, prompting many to change tack by relocating operations or creating new partnerships.

In mid-January the Citi report ‘Supply Chain Finance: Uncertainty in Global Supply Chains is Going to Stay’ noted its global supply chain pressure index eased further in December 2022 and was now near to the levels reported during the global manufacturing expansion of late 2017 and early 2018.

But the report authors cautioned that while decreased demand is an important driver of loosening supply chain pressures, it is also a sign of mounting recessionary risks.

The findings of BDO USA’s 2023 middle market CFO outlook survey were even more ambivalent. Supply chain disruption was cited as the top business risk for the second year in a row and nearly half (49%) of retail CFOs were reducing overall inventory, although the retail sector expressed optimism for the year ahead and CFOs in the manufacturing sector expected chip shortages to ease in the coming months.

The Business Continuity Institute’s 2023 supply chain resilience report qualified its finding that the level of supply chain disruption reported by organisations was still more than twice as high as pre-pandemic levels by observing these high results are partly due to more analysis being undertaken on the performance analytics of supply chains.

In the meantime, a global risk survey of more than 1,300 directors and executives conducted by consulting firm Protiviti reported uncertainty surrounding core supply chain ecosystems was one of the major concerns for the firms surveyed this year.

Aerospace manufacturer Boeing’s losses for 2022 have been attributed partly to instability in its supply chain with its financial results statement referring to the continued operational impact of supply chain disruption.

Elsewhere, domestic appliance company Whirlpool’s 2022 financial results were dented by supply disruption in North America during the final quarter – leading to a fall in net sales of more than 15% – while Volvo Group reported a 21% reduction in order intake during the final three months of last year as a consequence of ongoing supply chain constraints in its major markets.

According to analysts at Hargreaves Lansdown (who describe Volvo’s supply chain as enormous, expensive and complex), wider supply chain issues are problematic and likely to persist for a while.

A new survey of US-based small and medium-sized businesses conducted by Capterra found 88% were either in the process of, or planning to, nearshore at least some of their suppliers this year, taking what it describes as ‘drastic action’ to optimise and innovate their supply chains.

According to Capgemini Research Institute, only 11% of organisations have the ability to secure customer and supplier market access despite its high business impact. It estimates supply chains will be more local than global within just three years, despite almost 60% of supplier bases currently being located outside companies’ domestic markets.

Supply chain reconstruction and reshoring take time though, which has prompted some corporates to adopt a different (and not always advisable) approach. For example, a survey of global procurement and sourcing professionals conducted by sourcing software firm Keelvar found more than one fifth admitted to cutting corners to ensure supply and/or going outside approved supplier lists to secure products.

Medical and laboratory products manufacturer Cardinal Health has adopted a longer-term approach, partnering with a technology firm to develop software that streamlines pharmacy inventory management by analysing real-time clinical and purchasing data.

It was reported earlier this month Apple was looking to reduce supply chain risk by signing up an additional manufacturer for its iPhones. An analyst at Isaiah Research said the company’s objective was to reduce supplier concentration by having at least two sources for each component or value chain.

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